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Exam 7: Optimal Risky Portfolios

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Question 41

Multiple Choice

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The weights of A and B in the global minimum variance portfolio are _____ and _____,respectively.

A) 0.24; 0.76
B) 0.50; 0.50
C) 0.57; 0.43
D) 0.45; 0.55
E) 0.76; 0.24

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Question 42

Multiple Choice

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The standard deviations of stocks A and B are _____ and _____,respectively.

A) 1.5%; 1.9%
B) 2.5%; 1.1%
C) 3.2%; 2.0%
D) 1.5%; 1.1%
E) none of the above

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Question 43

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An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the Capital Allocation Line must:

Consider the following probability distribution for stocks C and D: $\begin{array}{cccc}\underline{\text { State }} &\underline{ \text { Probability }} &\underline{ \text { Return on Stock C} } &\underline{ \text { Return on Stock D} } \\1 & 0.30 & 7 \% & -9 \% \\2 & 0.50 & 11 \% & 14 \% \\3 & 0.20 & -16 \% & 26 \%\end{array}$ -The standard deviations of stocks C and D are _____ and _____,respectively.

The variance of a portfolio of risky securities

The risk that can be diversified away is

Firm-specific risk is also referred to as

The separation property refers to the conclusion that

Which one of the following portfolios cannot lie on the efficient frontier as described by Markowitz? $\begin{array} { c c c } \underline{\text { Portfolio } }&\underline{ \text { Expected Return} } &\underline{ \text { Standard Deviation }} \\ \text { A } & 10 \% & 12 \% \\\text { B } & 5 \% & 7 \% \\\text { C } & 15 \% & 20 \% \\\text { D } & 12 \% & 25 \%\end{array}$

If you invest 35% of your money in A and 65% in B,what would be your portfolio's expected rate of return and standard deviation?

The variances of stocks A and B are _____ and _____,respectively.

The expected rate of return and standard deviation of the global minimum variance portfolio,G,are __________ and __________,respectively.

The standard deviation of a two-asset portfolio is a linear function of the assets' weights when

Consider the following probability distribution for stocks C and D: $\begin{array}{cccc}\underline{\text { State }} &\underline{ \text { Probability }} &\underline{ \text { Return on Stock C} } &\underline{ \text { Return on Stock D} } \\1 & 0.30 & 7 \% & -9 \% \\2 & 0.50 & 11 \% & 14 \% \\3 & 0.20 & -16 \% & 26 \%\end{array}$ -The coefficient of correlation between C and D is

The expected return of a portfolio of risky securities

When borrowing and lending at a risk-free rate are allowed,which Capital Allocation Line (CAL) should the investor choose to combine with the efficient frontier? I.The one with the highest reward-to-variability ratio. II.The one that will maximize his utility. III.The one with the steepest slope. IV.The one with the lowest slope.

Security M has expected return of 17% and standard deviation of 32%.Security S has expected return of 13% and standard deviation of 19%.If the two securities have a correlation coefficient of 0.78,what is their covariance?

Which of the following statements is (are) true regarding the variance of a portfolio of two risky securities?

For a two-stock portfolio,what would be the preferred correlation coefficient between the two stocks?